DEALBOOK; Pressured, Hartford Puts Most of Its Life Insurance Division Up for Sale

By MICHAEL J. DE LA MERCED

Published: March 22, 2012

4:42 p.m. | Updated

The Hartford Financial Services Group said on Wednesday that it would sell most of its life insurance business, acceding to demands from one of its biggest shareholders, the hedge fund Paulson & Company.

Hartford, which also said it would wind down its annuity business, intends to focus on its core operations in property and casualty, group benefits and mutual funds.

''The Hartford's sharper focus will lead to an organization that, over time, will be positioned for higher returns on equity, reduced sensitivity to capital markets, a lower cost of capital and increased financial flexibility,'' Liam E. McGee, the company's chairman and chief executive, said in a statement. ''With this portfolio and the actions we are taking, we are on the right path to unlock value and deliver superior, long-term returns for shareholders.''

But the moves did not appear to fully satisfy the concerns of Paulson & Company. The hedge fund said in a statement that while it appreciated the insurer's efforts to raise shareholder value, its actions did not address the fundamental problem of analysts who were neglecting the company's property and casualty business.

''While we appreciate the extensive work of the Hartford's board and management, we do not believe the positive actions announced today address the main problem with the Hartford's undervaluation,'' the hedge fund said in a statement.

Hartford's announcement early Wednesday morning came after weeks of agitation by Paulson & Company, which holds an 8.5 percent stake in the insurer. The hedge fund has called for a breakup of the 200-year-old company, arguing that the value of Hartford's ''crown jewel'' property and casualty business was obscured by weaker-performing units.

In a presentation filed with the Securities and Exchange Commission this month, Paulson & Company argued that spinning off the property and casualty business would increase shareholder value 60 percent.

But the Hartford said that its decision came after a business review by its management and board over the last several quarters. The company had hired Goldman Sachs and Greenhill & Company to consider possible business changes last summer.

Paulson & Company's founder, John A. Paulson, is not known for being an activist investor. But he participated in the Hartford's earnings call last month to urge management to ''do something drastic.''

Behind the hedge fund's campaign is the poor performance of the Hartford's stock, which has tumbled more than 16 percent in the last 12 months. The insurer, one of the country's oldest, had been battered by the financial crisis and was a recipient of government bailout money. Hartford repaid its bailout, totaling some $3.4 billion, two years ago.

Paulson & Company has suffered some setbacks over the last year as numerous bets - on gold and the Chinese company Sino-Forest, among others - have soured.

In its statement on Wednesday, Hartford said it would stop selling new annuities next month and would record a charge of $15 million to $20 million in its second quarter this year. The move will reduce its annual run-rate operating expenses by about $100 million, beginning next year.

Hartford plans to complete asset sales within the next 12 months to 18 months.

Shares in the company rose 1.43 percent, to $22.02 on Wednesday.

This is a more complete version of the story than the one that appeared in print.

PHOTO: Liam McGee, chief executive of Hartford Financial Services, says the company will focus on property and casualty, group benefits and mutual funds. (PHOTOGRAPH BY JONATHAN FICKIES/BLOOMBERG NEWS)